What financial instrument involves lending money to an organization in exchange for regular interest payments?

A bond is a financial instrument where an investor lends money to an organization, typically a corporation or government, in exchange for periodic interest payments, known as coupon payments, and the return of the bond's face value when it matures. This arrangement creates a debtor-creditor relationship where the bondholder is the creditor. The issuer of the bond uses the raised capital for purposes such as funding projects or paying off existing debt.

Unlike stocks, which represent ownership in a company, bonds represent a loan to that company or entity. They offer a fixed income, making them an attractive option for investors seeking regular income, which is not typically the primary function of options or mutual funds. Options are derivative contracts that give holders the right to buy or sell an underlying asset at a set price before a specific date, while mutual funds pool money from multiple investors to invest in a diversified portfolio, usually managed by a professional manager. Bonds are characterized by their loan feature and predictable interest payments, distinguishing them from these other financial products.